ByJacob Silverman, ContributorOctober 5, 2011

For years industry analysts have been predicting the "death" of radio. Satellite radio – Sirius XM has about 21 million subscribers – was supposed to be its demise in the first decade of this century. But one of the great benefits to predicting the future is that there's rarely a cost to being wrong; when events disprove a past prediction, simply move on to the next bit of sage prognostication.

The latest suspect in radio's impending extinction is Internet music services such as Spotify and Pandora that promise to offer a level of personalization and user control that commercial, or terrestrial, radio can't match. But radio stubbornly lives on: According to the research firm Arbitron, 190 million Americans ages 12 and older listen to radio on a weekly basis. What's more is that for musicians, despite the utility of YouTube, Twitter, or iTunes, the mass reach of radio is still the easiest way to break out big as an artist.

So what's happening in the strange new world of Internet music, and will the prognosticators ever be able to see their prophecy fulfilled? And what will be the effects for musicians?

Gone are the days when a few programmers could throw a music-streaming service online and be blithe about the legal consequences. Streaming music services such as Spotify and Rdio are now expected to make the necessary licensing deals before they enter the marketplace. These negotiations aren't always easy – Spotify came to the United States several years after launching in Europe in part because of difficulties nailing down licenses – but they are cheaper than the costs of litigation.

Licensing deals signal a new era of cooperation between Internet music services and record labels and artists agencies, who, in most cases, no longer view sites like Pandora as a threat to the bottom line.

"In all cases, we've managed to negotiate royalty deals without litigation," says Richard Conlon, a senior vice president at BMI, one of three organizations that collect royalties for US songwriters and publishers.

Companies like BMI keep an eye out for emerging music start-ups, but these new music services often seek out the necessary partners, both to establish legitimacy in the eyes of users and record companies and to signal to venture capitalists that they're deserving of investment. "For the vast majority of major entities, they've come to us," says Mr. Conlon, adding that BMI, in 1995, became the first company to establish a license covering the usage of music on the Internet.

For now, streaming services are largely divided into two arenas. First, there are algorithm-driven Internet jukeboxes – Grooveshark, Pandora, Last.fm – that play songs based on users' tastes. Second, there are on-demand services – Spotify, Rhapsody, MOG, Rdio – that allow users to play any song in the service's library. Pricing plans, ranging from free of charge to $9.99 a month, determine the number and kind of ads a user faces. In some cases, a free subscription limits how many hours of music users may listen to per month. Finally, all streaming services promise access to enormous catalogs of songs that, while containing some notable omissions, are far larger than any listener's purchased music library.

For users of jukebox services, the main complaint is often a lack of control – i.e., a listener can determine a song style or genre but cannot make a playlist. For services like Spotify, the criticism is the opposite: a lack of Pandora-like randomness.

But some users are stepping up to solve that problem. Recently, Andy Smith, a programmer, built a Web application called Echofi, which essentially uses a Pandora-like algorithm to give Spotify users recommendations. The result is something like a merging of the two services: Pandora's recommendation features with Spotify's on-demand capabilities. Expect streaming services to jump on Mr. Smith's innovation (in fact, iTunes "genius" playlist function already has).

The streaming music landscape is heavily populated but without a clear ruler. Each Pandora or Spotify is heralded as a game changer, but no one service has proved ascendant. While the overall trend is toward the consumer being the curator of his or her own experience (and sharing that experience through social networks), the magical balance – if there even is one – remains elusive.

This lack of an industry kingpin means many radio stations aren't worried about Internet streaming encroaching on their territory. "I think they're complementary media," says Conlon. "You're going to go to radio for an experience that's different."

Jennifer Ferro, general manager of KCRW, a public radio station in Los Angeles, agrees. "In a land of automation and algorithms, nothing can replicate the passion of a DJ talking about music they love," she says. "Curation is even more important now that technology and services such as these have provided an overwhelming amount of access to music."

Radio stations adapt to the Web

Still, it's now rare to go to a radio station's website and not be able to download episodes of shows or to listen to a live stream of that station. In many ways, terrestrial radio is moving toward the polestar of Internet streaming. KCRW offers online streaming, an iPad app, and a 24-hour music broadcast that uses some familiar elements but with the KCRW imprimatur. Such hybrid sites indicate that the cross-platform future of radio may be more collaborative than competitive. "We would love to partner with any of [these] services and are always looking for compelling reasons to do so," says Ms. Ferro.

Clear Channel, the biggest player in commercial radio, has jumped directly into the streaming market with iHeartRadio, which allows users to listen to live terrestrial radio stations or to create custom stations based on an artist or song. Given Clear Channel's industry dominance, iHeartRadio may have the resources to take off, but it may be threatened by its own insider status – does Clear Channel want to innovate itself out of business? – and by the fact that early adopters of streaming services gravitate toward Web-native entries like Spotify and Turntable.fm that have found heavy support among music bloggers and other online tastemakers.

While music lis-teners now benefit from a raft of choices, the losers may be the musicians themselves. Agreements between labels and Internet music providers can be opaque, if not secret. Some companies remain diffident about what kind of service they want to be. For example, Turntable.fm – which allows user DJs to "spin" tracks for a room full of listeners who then vote on what they like, earning points for the DJs – initially claimed it didn't need to negotiate licenses, arguing that they fell under an exception for "noninteractive" services. With their audience exploding and more venture capitalists expressing interest, they changed tack.

While in most cases streaming services have established agreements with labels and artists organizations, the payouts can still be meager, which has earned pungent criticism from musicians and groups such as BASCA, which represents British artists. A number of independent labels have removed their music from Spotify, arguing that the payments are insufficient.

It can be difficult to tell how much musicians will get paid – the money has to go from the streaming service to the rights organization and then to the songwriter and publisher; record companies may also earn a cut – but the consensus is that it's not much. In early September, the indie band Uniform Notion posted on its Tumblr blog a now widely shared post explaining how much they earn from purchases – from sites like eMusic, Amazon, and iTunes – and from streaming. For a single play of a song on Spotify, the band would earn about $0.004. Listening to the entire album would earn them 4 cents.

Bruce Houghton, president of booking agency Skyline Music and editor of the music-technology blog Hypebot, argues that patience is in order. "While many wish there were more transparency, most understand that we're in the early stages of music streaming and are optimistic that enough will become willing to pay for subscriptions so it becomes a significant revenue stream."

BMI's Conlon offered similar thoughts, saying that "the royalty payments when you get to the end of a quarter might be small. The good news is that they're there."

Streaming revenue for musicians

Spotify and other such services have created revenue sources for some musicians who previously could only count on their music being pirated or never heard at all. "I think it's done an amazing and wonderful job with flattening the playing field," says Conlon. "We get e-mails every quarter from writers who've never seen money before. The long tail is alive and well," he says, adding that rates may be negotiated upward in the future.

For now, that's good news for commercial radio, whose industry power remains significant. Only a few car companies offer access to in-dash streaming services – and only on a few models. According to Arbitron, the number of drivers streaming music in-car tops out at about 6 percent (for Pandora). Eighty-four percent of drivers still listen to radio.

But many streaming services didn't exist just a few years ago, and they're especially popular with young consumers. Auto companies are sure to find a way to satisfy the demand to bring Spotify or Rhapsody on the road, and cellular companies will be expected to help. Says Conlon, "When we have pervasive Wi-Fi" – omnipresent 4G or faster connections – "I think we're going to see some very cool stuff."